A Utah data center has denied a major bitcoin mining company access to a facility in which it ran an industrial-size operation earning payouts in the digital currency, alleging in a lawsuit that it failed to make payments for electricity usage, rent and cabinets.
CoinTerra Inc. Chief Executive Ravi Iyengar said the action by C7 Data Centers Inc. had forced his company to default on a $4.15 million promissory note and on payments to its “cloud mining” customers. Such customers buy contracts that give them rights to a portion of the stream of bitcoins earned in the mining operations.
Mr. Iyengar said CoinTerra, which also manufactures and sells its own bitcoin mining hardware, has filed a countersuit against C7 and is currently in negotiations with its note holders to seek to restructure payments. “Because of the default event [caused by the data center’s actions], basically [the note holders] have to take the next step,” he said.
The business of bitcoin mining is associated with the work done by a network of independent computers to confirm transactions within bitcoin’s software-driven payment system. In return for that work, and as part of a computational competition with each other, those computers earn a right to “mine” periodic distributions of newly issued bitcoins. In cloud mining contracts, retail customers buy contracts that give them rights to a portion of the bitcoin payouts flowing to the wholesale operator.
CoinTerra’s woes coincide with a rare fall in the bitcoin network’s “hashrate,” a key metric of total computational capacity, which by order of the system’s software algorithm dictates how difficult it is for miners to compete for bitcoin issuances. It also comes alongside a sharp fall in bitcoin’s price, now down 80% from its all-time peak in December 2013.
These conditions have raised concerns about the profitability of bitcoin mining. CEX.io, a major exchange and mining company, announced Monday that it had suspended cloud mining operations because of them.
Responding to questions about the lawsuit, Wes Swenson, Chief Executive Officer of C7 Data Centers Inc., said that once CoinTerra was more than 60 days into payment delinquency and remediation attempts had failed, “the client was prevented from accessing the facilities [and] service was suspended.” C7 then filed suit with Third District Court in Salt Lake City, claiming that CoinTerra “failed and/or refused to make the payments required under [its] contract,” even though it was the data center firm’s “information and belief, CoinTerra often had revenue sufficient to make larger payments.”
“We have never filed a lawsuit against a customer in the almost 8 years I have been involved with C7,” Mr. Swenson said. “This is extremely rare for us.” He added, “I would certainly prefer to resolve the issue through nonlegal means.”
Mr. Iyengar said that with its countersuit, CoinTerra would “vigorously prosecute its claims against C7 while defending the claims levied by C7.” He also added he is “hopeful that the parties can resolve this matter quickly.”
Although CoinTerra formerly had operations elsewhere in the U.S., its CEO said that at the time of the shutout the facility on the outskirts of Salt Lake City was its only current mining operation. At that site, it managed a total “hashing power” of around 4 petahashes per second—or 4,000 trillion calculations per second—a calculation that defines mining operators’ capacity to compute the mathematical equations needed to win bitcoin payments. That would put it at slightly more than 1% of the total hashing power of the bitcoin network.
Mr. Iyengar said that around 95% of that capacity was dedicated to mining for CoinTerra’s own account, rather than for cloud mining clients.
SOURCE:
http://www.wsj.com/articles/bitcoin-miner-cointerra-defaults-after-data-center-cuts-access-1421198160
